The report attacks longstanding assumptions about product costs that have troubled worldwide manufacturers for decades. It comes from engineering-software developer Boothroyd Dewhurst Inc., and is titled "Improved Product Design Practices Would Make U.S. Manufacturing More Cost Effective." Coauthored by Nicholas Dewhurst and David Meeker, it is available at dfma.com/truecost.

The authors identify principles of best design practices that many U.S. manufacturing companies overlook when outsourcing: It is often possible to redesign products in ways that reduce part count and cost. The authors argue that U.S. companies should do a better job making cost analysis part of product design. They claim instituting rigorous cost analysis for product design would let U.S. manufacturers develop innovative products that are more economical to produce.

The study features an in-depth, quantitative analysis of how redesigning an electric drill would eliminate the cost advantage of offshore manufacturing. The report also points out the necessity to account for extra costs associated with offshore manufacturing. Hidden costs include shipping and logistics that can add about 24% to labor and material expenses at offshore locations. One conclusion: Companies that consider the potential for design improvement and make a realistic estimate of outsourcing costs will conclude that it often makes more sense to manufacture products in the United States.

"Years of consulting at companies tell us that U.S. manufacturers have little idea of what their products should cost to make," said Nicholas Dewhurst, Boothroyd Dewhurst Inc. executive vice president. "Companies historically do a poor job of building cost analysis into early product design. Many now rushing to outsource still do not understand that the design of the product determines the final cost.

"Outsourcing is not the first step in lowering product costs," adds Dewhurst. "We hope this study encourages the U.S. manufacturing industry to take another look at design-cost analysis."

LABOR COSTS

Country

Hourly wage in 2002 $U.S.

U.S.

21.33

Singapore

7.27

Hong Kong

5.83

Taiwan

5.41

The authors say that labor rates for mainland China are not easy to pin down and vary widely from region to region, and from urban and rural workers. Rates may range from as little as $0.33 to $4/hr.